Tirole, J. (2006) Corporate Governance Tutorial 2 pp. 17-20 Section 1.1.2 Dysfunctional Corporate Governance - Managerial misbehaviour is only the “tip of the iceberg” of the moral hazard caused by dysfunctional corporate governance. - Other forms of dysfunctional corporate governance : 1. Lack of transparency: Investors and other stakeholders are sometimes imperfectly informed about the levels of compensation granted to top management. Ex.: managerial stock options, perks, recruiting practices 2. Level: The total compensation package (salary plus bonus plus long-term compensation) of top executives has risen substantially over the years and reached levels that are hardly understandable to the public. The proponents of high levels of compensation point out that some of this increase comes in the form of performance-related pay: more bonuses and stock options 3. Tenuous link between performance and compensation: Four reasons why the link between performance and compensation may be poorly:
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